If you are active in the property market as a developer, you know that renovating a home is often the ideal way to obtain the house you desire at a more affordable home. Of course, renovating a home can be expensive and challenging. It is important to have skills and experience in this field, but you also need to ensure that you are funding the development properly.
This is where we can help. We have a team of skilled and experienced people who have helped many developers finance their property dreams. This guide will show you what options you must enjoy the equity that may be located in your home, including:
• Further advances
• Second charge
How can you finance renovation work?
Everyone has a budget in mind when carrying out renovation work, but it is vital that you operate to a realistic aim and goal. You should obtain a range of quotes from professionals and you should closely examine the materials they will use for this work, the tools they intend to use and how the project will be managed and finished.
Once you have a budget in mind for the project, you need to obtain the finance. If you are looking at a project at £10,000 or less, it makes sense to use any savings you may have, to apply for an unsecured loan or to even take out a credit card with 0% finance if you can obtain one.
The equity that you have on your home will depend on the value of your property. This is set by the current market of the property minus the level of mortgage that you owe. Many property owners who have owned the property for many years, and who have paid off a significant level of their mortgage will find that they have a greater level of equity in their home.
As an example, someone who buys a home for £300,000 on a £270,000 mortgage enjoys 10% equity on their property. After a period of time, the value of the home has increased to £350,000 while the property owner has managed to pay off £10,000 of their mortgage, which means that the borrowing stands at £260,000.
Previously the property owner had £30,000 equity on their home, equating to 10% but now they hold £90,000 equity on their home, which equates to just less than 30%.
You can consider further advances as a way of topping your current mortgage. With this solution, you remain with the same lender and although your mortgage may not change, you will usually end up paying two rates. This is the rate on the initial mortgage and then a separate rate on the additional money that has been borrowed.
Be aware of the differences between fixed rate and variable rate, and the impact this may have on you. Borrowers should be aware of the dates when early payment periods end, as the dates may be different for the two elements.
With further advances, there is no need to wait for the market to have the right conditions to borrow more, you can be confident in achieving a good rate at any time. If you are happy with your current mortgage, you should look to retain the same rate. With this style of agreement, you should find it is faster to arrange than a mortgage. This is because there is less involvement from solicitors.
Make sure you know the separate payments for each element and ensure you are comfortable with the amount you pay in total each month.
Remortgaging to release equity
If you are looking to release equity to pay for renovations or changes around the home, remortgaging can be a fantastic idea. When remortgaging to borrow more money, the factors involved with the overall borrowings include:
How much equity is involved with the property
The assessment made by the lender on what you can afford to borrow
This set-up often allows people to improve their mortgage rate, allowing them to save money monthly. The fact that all your borrowing remains under a single arrangement is of benefit as this is more convenient.
However, you may find re-mortgaging incurs additional charges, it can increase the length of our mortgage and you may not receive the most competitive rate.
This is a style of secured loan and is often compared to having a second mortgage. This is usually provided by a different lender, and the amount that can be borrowed with this set-up will depend on the equity available in your home.
While the second charge rate may be larger than your mortgage rate, it is often lower than the rate associated with unsecured loans or credit cards. You will also find that the payment period is available over a longer period than you would receive with these options.
With a second charge, you have the chance to find the best payment option. However, you must be confident you can meet all the monthly payments associated with all your outgoings. A failure to pay your initial mortgage or the second charge may place your home at risk.
You will also find that second charges often incur additional fees, and these can be expensive. Make sure you are confident that you can meet all these outgoings.
If you are looking for guidance in funding home improvements, get in touch and we will be happy to assist however we can.